A Neighborly Ambition: Strengthening Australia-Indonesia Ties in an Uncertain World

By Nadira Wulandari

Cover Image Attribute: Australia's Prime Minister Anthony Albanese and Indonesian President Prabowo Subianto inspect the honour guards during a welcoming ceremony upon their meeting at the Merdeka Palace in Jakarta, Indonesia May 15, 2025. / Source: X

Australian Prime Minister Anthony Albanese’s visit to Indonesia on May 14, 2025, his first overseas trip following a resounding re-election, signals a deliberate pivot toward deepening ties with Australia’s closest major neighbor. Meeting with Indonesian President Prabowo Subianto in Jakarta, Albanese underscored that Australia has “no more important relationship” than with Indonesia, a sentiment that reflects both geographic reality and strategic intent. The visit, marked by ceremonial welcomes and substantive discussions, highlights the potential for a robust partnership between two nations whose proximity has not yet translated into commensurate economic or cultural integration. Yet, as both leaders navigate domestic priorities and global uncertainties, the path to a truly comprehensive relationship demands pragmatism, mutual respect, and a willingness to bridge persistent gaps in perception and ambition.
The ceremonial reception in Jakarta, with 3,200 schoolchildren waving flags and motorized troops escorting Albanese to Merdeka Palace, was a vivid display of Indonesia’s hospitality and Prabowo’s flair for grand gestures. But beyond the pageantry, the talks aimed at producing “several concrete agreements that could bring direct benefits to the people of both countries,” according to Indonesia’s presidential office. The agenda spanned defense, trade, investment, food security, and energy, reflecting shared priorities rooted in regional stability and economic growth. Albanese, in a joint press conference, described last year’s Defense Cooperation Agreement as “the most significant step” in the bilateral security partnership in three decades, enabling new cooperation in maritime security, counterterrorism, and humanitarian relief. “Let me be very clear, I do not see this agreement though, as the last step, just the next step,” he added, signaling an intent to build on this foundation.
The defense pact, underpinned by the 2008 Lombok Treaty, has already borne fruit, with over 2,000 soldiers from both nations conducting joint drills in November 2024. This agreement, hailed by Canberra as the “deepest and most significant” in bilateral ties, responds to regional flashpoints like the South China Sea and broader concerns about great power rivalry. Yet, as Euan Graham of the Australian Strategic Policy Institute notes, “Jakarta sees China and Russia as vectors of opportunity more than threats and views the US and China primarily through the same lens of great power rivalry. That’s largely at odds with Canberra’s world view.” This divergence complicates the partnership. Indonesia’s dismissal of Russia’s reported request to base warplanes in Papua, with Albanese confirming that “Indonesia’s answer is no, they’ve made it very clear,” reassured Canberra but underscored Jakarta’s commitment to strategic autonomy.
Economic ties, however, remain the relationship’s Achilles’ heel. Despite the 2019 Indonesia-Australia Comprehensive Economic Partnership Agreement, trade and investment lag behind potential. Australia ranks as Indonesia’s 13th largest two-way trading partner, accounting for just 2 percent of Australia’s total trade at $17 billion in 2023, while Indonesia is not among Australia’s top 10 trading partners. Investment is equally modest, with Australia as the 11th largest source of foreign direct investment in Indonesia, totaling about half a billion USD last year. Prabowo, in the press conference, invited Australia to “participate more in our economy,” emphasizing the need for investment amid “uncertainties in the current global economic situation.” Albanese acknowledged that strengthening investments is “natural and vital but not inevitable,” calling for greater engagement from government, business, and civil society.
Indonesia’s economic ascent adds urgency to these calls. Projected to become the world’s fifth-largest economy by 2040, with a growth rate of about 5 percent and ambitions under Prabowo’s Asta Cita agenda to reach 8 percent, Indonesia presents immense opportunities. Asta Cita’s eight priorities—ranging from food and energy self-reliance to green economies and industrial transformation—align with Australia’s Southeast Asia Economic Strategy to 2040, which targets sectors like agriculture, critical minerals, and clean energy. Jennifer Westacott, Australia’s Business Champion for Indonesia, emphasizes opportunities in agriculture, where Prabowo’s plan to provide free meals to 83 million people daily demands robust supply chains, and in lithium for Indonesia’s electric vehicle battery industry. “Australian companies cannot afford to miss out on this.”
The challenge is perception. Westacott, who has worked to dispel the notion that doing business in Indonesia is too complex, notes, “All jurisdictions have complexities, including ours, but this should not stop Australian companies pursuing the huge economic opportunities that exist in Indonesia.” Her efforts, alongside Australia’s $2 billion Southeast Asia Investment Financing Facility and Jakarta-based Deal Team, aim to boost investment, yet Australian businesses have lagged behind competitors from Japan, the US, and Europe. Indonesia’s investment in Australia, nearly double that of Australia’s in Indonesia in 2023, underscores the imbalance.
People-to-people ties offer a brighter spot. Indonesian student numbers in Australia have surged by 75 percent over the past decade, while 1.4 million Australians visited Indonesia in 2023, making it their top holiday destination. Nearly 90,000 Australians claim Indonesian heritage, and initiatives like the New Colombo Plan and ACICIS foster educational exchanges. Westacott’s success in establishing Western Sydney University’s campus in Indonesia in just two years demonstrates what dedication can achieve. Yet, educational partnerships remain urban-focused, missing opportunities to engage Indonesia’s 4,000 universities across the archipelago.
Geopolitical differences pose another hurdle. Indonesia’s non-aligned stance, exemplified by its recent BRICS membership and pursuit of CPTPP and OECD accession, contrasts with Australia’s close alignment with the US, particularly through AUKUS. Jakarta has expressed concerns about nuclear submarine proliferation, which Albanese must address by clarifying that AUKUS involves nuclear-powered, not nuclear-armed, submarines. “Albanese should offer Prabowo credible alternatives to Russian and Chinese engagement through trade, technology, and education exchanges, rather than reacting to Jakarta’s moves with suspicion,” suggests one analysis. Prabowo’s pragmatic shift from nationalist rhetoric to a focus on multilateralism offers an opening, but his commitment to balancing ties with China, the US, and Russia requires Australia to respect Indonesia’s autonomy.
Global economic headwinds, notably US President Donald Trump’s 10 percent tariff on Australian exports and 32 percent on Indonesian ones, add complexity. Both nations are negotiating with Washington for better terms, but the threat of a broader trade war underscores the value of diversification. Albanese’s support for Indonesia’s CPTPP bid, which sets high standards in e-commerce and intellectual property, could enhance Indonesia’s competitiveness while reinforcing a rules-based trade regime. “The growth of your nation and your region also speaks for the prosperity and opportunity created by free and fair trade,” Albanese said, echoing a shared interest in stability.
The visit also corrects past missteps, like Albanese’s absence from Prabowo’s October 2024 inauguration, which Abdul Rahman Yaacob of the Lowy Institute called a “misstep.” Analysts like Gatra Priyandita see the trip as reinforcing that “regional partnerships are not secondary to relations with major powers, but central to Australia’s foreign policy agenda.” Yet, some in Australia argue for less engagement with Southeast Asia, citing divergent views on China and Ukraine, a stance Rahman deems “strategically wrong.” He argues, “Canberra must understand that Southeast Asia will not completely share Australia’s security concern, but that does not mean the two parties could not cooperate and work together on areas of common interest.”
Prabowo’s leadership, blending nationalism with pragmatism, and Albanese’s diplomatic approach, grounded in climate and economic cooperation, create a window for progress. Indonesia’s aid to Fiji and Australia’s doubled military training in the Philippines signal a broader regional focus. A 2024 climate partnership securing lithium supplies for Indonesia’s EV industry and export markets for Australia’s critical minerals exemplifies mutual benefit. Still, tensions linger—Indonesia’s unease with AUKUS, Australia’s strategic anxieties, and the need for deeper economic integration.
The relationship, as one commentary notes, is “underrated despite the enormous potential.” Four steps could unlock this: Indonesia maintaining its non-aligned stance while collaborating on regional stability; leveraging Prabowo’s global ambitions through trade agreements like CPTPP; expanding people-to-people ties in education and tourism; and Indonesia appointing a business champion to mirror Westacott’s role. “Together, we must complement the ambitions of the Indonesian people and the Indonesian government, because when we grow together, when we complement each other’s mutual interests, our countries and our people will be the better for it,” Westacott asserts.
As Albanese departs for the Vatican and Singapore, and Prabowo prepares to host France and China, the Jakarta visit sets a tone of ambition tempered by realism. Trust, not just desirable but essential, requires moving beyond symbolic gestures to a partnership that is multidimensional and inclusive. In an era of global fragmentation, Australia and Indonesia, neighbors by geography and partners by choice, have a chance to redefine their relationship—not as a zero-sum game, but as a shared journey toward prosperity and stability.
With reporting by ABC News, The Jakarta Post, and Reuters.

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